Our school district is conected via t1 through an ATM. At the CO I hold 3
servers who hold the master and RW Replicas of all partitions, host DHCP,

At each school there is 1 server with file and print services, a RW
replica of the local eDir container partition...

If I bring down 1 of the servers in our Central Office (one in particular)
or if I turn off a router at a building location (as a test). The network
seems to buckle. I turned off a router at a school, not only could you not
log out (froze) you could not login. It almost appears that the local
netware 6.5 server is having separation anxiety and spends all of time
trying to get back in with the network and ignoring user requests.

This does not seem right - It seems to me that if the t1 line goes down
the local server should be able to (at a min) handle local user requests
to login/out and deliver apps and file and print services... all of these
are local (in one form or another)